However, it is by no means a clear-cut rule that assets which have fallen will automatically bounce back and FE Analytics shows if investors had plunged the depths of the worst performing IMA funds of 2013 in the search of high returns for 2014, they would – on the whole – have been even more out of pocket.
Source: FE Analytics
According to FE Analytics, eight out of the 10 worst performing funds of 2013 – which are all focused on commodities or emerging market equities – went on to lose money again in 2014. Four of those posted double-digit losses.
An equally weighted portfolio of the 10 worst performing funds of 2013 lost 40.26 per cent that year and, while not as bad, that portfolio is still down 7.9 per cent in 2014.
If you were to take out Oleg Biryulyov’s JPM Turkey Equity fund from the list – which is the only fund to have rebounded significantly – the portfolio was down 14.26 per cent last year.
As the table shows, the list is dominated by gold mining funds. Our data shows the six worst performing funds of 2013 were MFM Junior Gold, CF Ruffer Baker Steel Gold, SF Webb Smaller Companies Gold, BlackRock Gold & General, Smith & Williamson Global Gold & Resources and Investec Global Gold.
It isn’t too surprising that they did so badly over the last two years, however.
As they invest in gold mining companies they are commonly viewed as leveraged plays on the gold price and, while they spike when gold is on the up, they tend to fall much further when the precious metal loses value. In 2013, a growing appetite for risk among investors and a lack of inflation meant the gold price fell 28.45 per cent.
The funds which invest in smaller and therefore more risky gold miners were the worst hit by that fall, with the MFM Junior Gold and SF Webb Smaller Companies fund losing more than 60 per cent that year.
However, while the gold price and gold mining equities witnessed a mini-renaissance at the start of 2014, lower than expected inflation figures and the fact that the asset offers no yield meant the precious metal fell 0.16 per cent again last year – which in turn hit the miners as it was even more unprofitable for them to extract the metal.
All but one of those funds lost money last year: the exception being Evy Hambro’s £932m BlackRock Gold & General fund, which ended 2014 in positive territory with a return of 2.19 per cent.
Nevertheless, our data shows the gold price is now down 29.34 per cent since January 2013, while an equally weighted portfolio of those six gold funds has lost 55.64 per cent over that time.
Performance of gold funds versus index since Jan 2013
Source: FE Analytics
Oceanic Australian Natural Resources and BlackRock Global Funds World Mining are two other funds which struggled in 2013 and once again in 2014.
Natural resources funds had been very out of favour in 2013 as concerns about slowing growth in China, over-supply and the repercussions of over-spending by management teams all weighed on mining company shares.
However, those fears didn’t dissipate last year plus supply growth of iron ore was better than expected. That combined meant the iron ore price halved over the course to 2014 to reach around $70 a metric tonne, causing mining funds to struggle once again.
In fact, with losses of 47.16 per cent in 2014, the now £1.6m Oceanic Australian Natural Resources portfolio is the only fund on the list to be among the 10 worst performers last year as well. Our data shows the fund has lost a staggering 61.49 per cent since January 2013.
BlackRock Global Funds World Mining has fared slightly better, but is still down 38.97 per cent over that time.
While there have been some exceptions, emerging markets largely struggled once again in 2014 and one of the worst hit was Brazil. As a result, Luis Carrillo’s JPM Brazil Equity fund lost money last year.
It struggled in 2013 with losses of 22.24 per cent as commodity prices fell and the prospect of tighter monetary policy in the US caused concerns over Brazil’s current account deficit and need for external funding.
However, as the prices of basic materials continued to fall in 2014 and as the market has become increasingly frustrated by the lack of government reform in Brazil, the fund fell another 8.37 per cent last year.
However certain emerging markets – such as Turkey – did rebound after 2013.
The JPM Turkey Equity fund found itself on the list of worst performing IMA funds of 2013 as the country’s current account deficit, corruption scandals and protests plagued the market.
However, as the current account deficit has been significantly reduced – due to a change in monetary policy and the plummeting oil price – and the market was so lowly valued at the start of last year, Turkey came roaring back in 2014.
Performance of fund versus indices in 2014
Source: FE Analytics
According to FE Analytics, the $80m JPM Turkey Equity fund returned 27.66 per cent last year, narrowly outperforming its MSCI Turkey 10/40 benchmark which gained 27.36 per cent. As a point of comparison, the wider MSCI Emerging Markets index was up just 3.9 per cent last year.
